Karachi Stock Exchange has outperformed
many regional bourses in the last couple of years. The improved performance of
the stock market can mainly be attributed to consistent and transparent economic
policies resulting in strong economic growth, a successful privatization
process, sound monetary policy of the SBP, maintenance of fiscal discipline and
the capital market reforms including development measures introduced and adopted
by the stock exchanges with full support and guidance of the apex regulator,
SECP.

YEAR

RETURN OF KSE-100

AVG DAILY VOL

AVG. MARKET CAPITALIZATION (RS)

AVG. VALUE TRADED (RS)

2001

-16%

81,307,560

321,531,139,244

2,378,634,196

2002

112%

165,983,734

437,388,206,111

5,967,636,616

2003

66%

307,118,358

763,796,412,611

15,656,572,902

2004

39%

340,818,544

1,418,261,100,397

17,409,400,312

2005

54%

360,520,862

2,215,945,587,579

33,668,869,012

2006

5%

257,143,924

2,989,457,869,702

31,610,241,595

2007*

20%

217,504,419

3,090,006,468,742

22,792,061,593

* Uptil 20th April 2007

PERFORMANCE OVER THE LAST FIVE YEARS

In 2001, KSE-100 witnessed a decline of
16% mainly because of terrorist attacks that rocked the USA. The 9/11 attack
removed the gains of the bourses. Average daily volumes during the year were 82m
while average value traded was Rs.2.4 billion. In 2002, the index staged a huge
recovery rising by 112% during the year despite Indo-Pak crisis during the month
of May 2002. First a suicide bomb blast on 8th May in Karachi (the first of its
kind at that time) that resulted in the loss of several lives and then the
tension on the Indo-Pak border. In 2003, it was declared as the "Best
Performing Stock Market of the World for the year 2002î. The start of the 2003
was not much promising as In January 2003 the leverage in the market had gone
out of control and COT / badla rates had to be officially capped at a massive
40%. Even though after such dismal start, KSE-100 managed to post a rise of 66%
with average value traded during the year jumping by more than 150%. The year
2004 might be a rare exception in KSE recent history when there was no crisis of
any sorts. However, the year was also generally a lull in terms of the rise the
market had become used to. There was little activity for a larger part of the
year and even though the index might have risen by a healthy 39% during the
year, 11.67% of this rise was in the month of December 2004 alone. 2005, who can
forget March 2005? Again a crisis caused by excessive speculation, very frequent
change of rules pertaining to exposure requirements and curtailment of funding
channels for stock trade. The number of companies eligible for COT was being
reduced gradually, while margin financing hadn't taken off. This switched most
of the leveraged trade to the futures" counters. This increased the
'hedging' opportunities between the ready and futures" market (buying on
ready counter and selling on the futures"). Infact hedging increased to
such a level that it soon became apparent that the 'hedged' position and other
leverage had collectively risen to such levels that there was a settlement risk
for the entire stock exchange. When the bubble finally burst, the market fell by
almost 25% in the last two days of March 2005. Later on corrective measures were
adopted by the management of the bourses which resulted in the year end index
return of 54%. The average value traded during the year jumped by 100% to Rs.34
billion.

KSE PERFORMANCE IN 2006 - AN ODD
AMONGST EVENS

After posting an average gain of 55% in
the last five year, Karachi Stock Exchange posted a modest improvement in 2006.
For the fifth year in a row, Pakistan stocks posted positive returns. However,
the gain of 5% (3% in US dollar terms), measured by benchmark KSE Index, in the
calendar year 2006, was the lowest when compared to the previous 4 years
(2002-05) average annual gains of 68% (68% in US dollar). Pakistan's equity
market performance was not good when compared to other emerging markets of Asia.
Pakistan ranked amongst the worst performing market by posting a dollar gain of
only 3% in 2006 versus MSCI EM return of 29%. In fact, Pakistan's performance
was slightly over stated as it also includes dividend yield of more than of 5%.

Significant Achievements during the
year were implementation of Pre-trade Verification System, Global Identification
Number (UIN), KSE 30 Index free float, Execution of an agreement between KSE and
National Clearing Company of Pakistan Ltd.

The contributing factors behind the
rise in the first half of 2006 were, healthy corporate results announcements,
sky high international oil prices, triple-digit growth in banking sector
profits, developments in the oil and gas sector including new discoveries and
production enhancements, reduction in anti-dumping duty by European Union on bed
linen and buying by foreign institutional investors. Negative sentiments in the
second half were fueled by import of cement to control prices, delays in
privatization of KESC, PTCL and Steel Mill, regional markets' slide and hike in
interest rates.

FUTURE OUTLOOK

At the end of 20th April 2007, KSE-100
managed to post a gain of 20%. The recent buying euphoria in the stock market
has been spurred by a number of favorable factors including continuation of the
present policies on banking sector by the SBP, renewed interest of large number
of buyers of shares, bright prospect of reaping dividends, good capital gains,
and presence of institutional investors in the market and expectation of high
corporate earnings. Further on, the mutual fund offerings are also expected to
continue their flow from the newly established asset management companies along
with the new risk management tools such as Value at Risk, Cash Settled Stock
Future Contracts and CFS Mak II will give further strength to the bourses.